By Andrew Green, Staff ReporterNO NEW taxes will be needed to finance this year's Budget, Minister of Finance and Planning, Dr. Omar Davies, told the House of Representatives yesterday.
The Government's $328 billion spending plan is to be financed from existing taxes, borrowing and other revenues, Dr. Davies said. He was outlining the Government's plans for financing its programmes for the current financial year, which started on April 1.
"Simply put, there will be no new taxes," he said as he opened the 2004/2005 Budget Debate. "There is no tax package."
This was in stark contrast with his presentation last year when he announced the proposed imposition of $13.8 billion in new taxes, sparking outrage from the private sector and months of adjustments and uncertainty.
MODEST TAX CUTS
Instead, Dr. Davies announced modest tax cuts. General Consumption Tax (GCT) will be removed from health insurance premiums. Imported solar water heaters made within the Caribbean Community will be exempt from duties and GCT, while those imported from outside the region will be exempt from GCT but will attract the appropriate duties.
In the previous Budget presentation, the Government had been attempting to recover from the failure to meet major economic targets. This time around, Dr. Davies announced success in meeting most of the targets.
Crucially, the fiscal deficit, a figure anxiously watched by local and overseas investors, stood at 5.8 per cent of Gross Domestic Product (GDP) in the last financial year, just within the five to six per cent limit set out in the Government's medium term programme.
The Government expects $155 billion in tax revenues this year, a 17 per cent increase over the level last year. It plans to borrow $153 billion, with $4.3 billion expected from grants, $2.5 billion in capital revenue, $10.2 billion in non-tax revenue and an additional $360 million from the sale of a cellular licence to AT&T.
The Government had been widely expected to hike property taxes. This brought in $1.3 billion last year, but is supposed to cover the $3 billion cost of providing street lighting and solid waste management.
PROPERTY TAX SYSTEM
The efficiency of the property tax system was not yet at an acceptable level, Dr. Davies said. As a result, he told property owners to "pay what you paid last year."
Although no new taxes have been introduced, many of the old ones will be biting harder because of inflation. Taxes are usually set as a percentage of the price of a good or service and when that price goes up, the tax collected also increases.
Inflation seems likely to come out at around 14 per cent for the last financial year. Dr. Davies acknowledged that this macro-economic target had not been met.
"The depreciation of the currency affected inflation," he said. "One of the points which we have made repeatedly is that inflation is really the most cruel of taxes."
INFLATION
Macro-economic targets for the current financial year are for inflation at 9 per cent, GDP growth of 2.5 per cent, a fiscal deficit of three to four per cent of GDP, a primary surplus of 13.7 per cent of GDP and Net International Reserves (NIR) of US$1.3 billion at the end of the year.
One factor which could have a major impact on the country's medium-term performance is the cost of oil imports, he said. If oil producers reduce supplies and crude oil prices average US$35 per barrel, for the fiscal year, the country's fuel bill could climb to over US$950 million, which is US$110 million above the original forecast based on oil at US$30 per barrel.
Such an elevated oil bill could push the current account deficit to 11 per cent of GDP from the original expected level of 10 per cent.
This issue provides the Government and Opposition an opportunity, "to work jointly on a realistic energy policy," Dr. Davies said.
PLEASE SEE THE FINANCIAL GLEANER INSIDE FOR EXCERPTS OF THE FINANCE MINISTER'S ADDRESS TO PARLIAMENT YESTERDAY.
